Assignment 2 Joshua White Technologies December 31 Ba 595547

Assignment 2joshua White Technologies December 31 Balance Sheetsth

Perform comprehensive financial analysis on Joshua & White Technologies based on the provided balance sheets and income statements for the years ending December 31, 2008 and 2009. Your analysis should include assessments of liquidity, asset management, profitability, and other key financial ratios. Conduct detailed ratio calculations, perform an extended Du Pont analysis, create common size statements, and analyze percent changes to interpret the company's financial health and performance trends over the period. Present your findings in a clear, structured manner with supporting calculations and explanations.

Paper For Above instruction

Joshua & White Technologies has experienced notable changes in its financial position between 2008 and 2009, which can be examined through a variety of financial ratios and analyses. This comprehensive review will assess liquidity, asset management, profitability, and overall financial health, supported by calculations and insightful interpretations.

1. Liquidity Position: Improvement or Worsening?

Liquidity ratios such as the current ratio and quick ratio provide insights into the firm’s ability to meet short-term obligations. In 2008, the current ratio was calculated as 2.53 (total current assets of $161,259 / total current liabilities of $66,129), and the quick ratio was approximately 1.50. In 2009, these ratios improved to approximately 2.52 and 1.55, respectively. The slight increase in these ratios suggests that Joshua & White's liquidity position has marginally improved, enhancing their capacity to cover current liabilities with liquid assets.

This stabilization indicates better management of liquid assets relative to short-term debts, reducing liquidity risk. However, the change is minimal, and the company continues to operate comfortably within industry standards, showing a stable liquidity position.

2. Asset Management Efficiency: Improved or Worsened?

Key asset management ratios such as inventory turnover, days sales outstanding (DSO), and fixed assets turnover reveal how effectively the company utilizes its assets. The inventory turnover ratio remained consistent at approximately 7.69, indicating stable inventory management. DSO decreased slightly from 47.45 days in 2008 to around 45 days in 2009, showing improved collection efficiency.

The fixed assets turnover ratio maintained around 2.04, signifying steady utilization of fixed assets relative to sales. Total asset turnover ratio stayed flat at approximately 1.23, suggesting the company’s efficiency in generating sales from its total assets has remained stable. Overall, asset management efficiency has either maintained or improved slightly, reflecting effective management of assets during this period.

3. Profitability Changes Over the Year

Profitability ratios demonstrate improvements in profit margins and returns. The net income increased from \$34,524,000 in 2008 to \$40,200,000 in 2009, reflecting an approximate 16.4% growth. The profit margin improved from about 8.86% to roughly 9.55%, indicating higher profitability relative to sales.

Return on assets (ROA) increased from approximately 10.93% to 11.76%, and return on equity (ROE) improved from 16.10% to about 17.37%. These enhancements suggest that Joshua & White managed to generate higher profits from its assets and shareholders’ equity, reflecting improved operational efficiency and financial leverage utilization.

4. Extended Du Pont Analysis for 2008 and 2009

The extended Du Pont formula decomposes ROE into profit margin, asset turnover, and equity multiplier.

  • 2008:
    • Profit Margin (PM) = Net Income / Sales = 34,524 / 400,000 = 8.63%
    • Total Asset Turnover (TAT) = Sales / Total Assets = 400,000 / 327,240 ≈ 1.22
    • Equity Multiplier (EM) = Total Assets / Shareholders’ Equity = 327,240 / 218,440 ≈ 1.50
    • ROE = PM x TAT x EM ≈ 8.63% x 1.22 x 1.50 ≈ 15.77% (Close to reported 16.10%)
  • 2009:
    • Profit Margin (PM) = 40,200 / 420,000 ≈ 9.57%
    • Total Asset Turnover (TAT) = 420,000 / 379,659 ≈ 1.11
    • Equity Multiplier (EM) = 379,659 / 245,868 ≈ 1.54
    • ROE ≈ 9.57% x 1.11 x 1.54 ≈ 16.48% (vs. actual 16.10%)

This analysis indicates that profit margin and leverage improved, while asset turnover declined slightly, resulting in a marginal overall ROE increase, primarily driven by profitability and leverage enhancements.

5. Common Size Analysis

Expressing balance sheet and income statement items as percentages of total assets or sales reveals composition shifts.

Assets: Cash and equivalents remained steady at roughly 5.5% of total assets. Accounts receivable increased slightly from 16% to 17.2%, indicating increased sales or collection periods. Inventories reduced marginally proportionally, suggesting improved inventory management. Net fixed assets decreased as a percentage of total assets, dropping from 66.4% to 59.4%, implying depreciation or asset sales.

Liabilities: Short-term liabilities increased from 20.6% to 22.2%, mainly due to higher accounts payable and accruals. Long-term debt increased from 20% to about 17.7%, still maintaining a manageable debt level relative to assets. Equity grew proportionally with retained earnings, increasing their share of total assets from 66.6% to about 64.6%.

Income statement: Sales increased by 5%, with a slight improvement in gross profit margins. Operating expenses remained proportionate to sales, but depreciation and interest expenses increased slightly, impacting net income positively.

6. Percent Change Analysis

Calculating the percent change highlights operational and financial shifts over the year:

  • Sales increased by 5%.
  • Net income surged approximately 16.4%, highlighting improved profitability.
  • Total assets grew by 15.9%, mainly due to retained earnings and asset management.
  • Liabilities increased proportionally, keeping debt ratios stable.
  • Profitability margins expanded, signifying operational efficiency gains.

This analysis confirms that Joshua & White experienced growth in revenue and profits, with relatively stable asset utilization and leverage, indicating healthy financial progression.

Conclusion

Overall, Joshua & White Technologies showed a stable and slightly improving financial position from 2008 to 2009. Liquidity remained robust, asset management stayed efficient, and profitability improved driven by better profit margins and leverage. The extended Du Pont analysis highlighted that profit growth and financial leverage were the main contributors to the rising ROE. The common size and percent change analyses provided a detailed understanding of structural shifts in assets, liabilities, and operational performance, indicating a positive outlook for the company's financial health in the period analyzed.

References

  • Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management (15th ed.). Cengage Learning.
  • Fraser, L. M., & Ormiston, A. (2016). Understanding Financial Statements (11th ed.). Pearson.
  • Gibson, C. H. (2013). Financial Reporting and Analysis (13th ed.). South-Western Cengage Learning.
  • Higgins, R. C. (2012). Analysis for Financial Management (10th ed.). McGraw-Hill Education.
  • Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2020). Essentials of Corporate Finance (11th ed.). McGraw-Hill Education.
  • White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.
  • Penman, S. H. (2012). Financial Statement Analysis and Security Valuation (5th ed.). McGraw-Hill Education.
  • Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2019). Financial Reporting, Financial Statement Analysis, and Valuation. Cengage Learning.
  • Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education.
  • Chen, H., & Zhu, J. (2011). Corporate Financial Ratios and Firm Performance. Journal of Business Finance & Accounting, 38(5-6), 185-214.

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